The Consequences of Zero Tolerance

The chart above shows what happens when policy is based on a slogan. In this case “Zero Tolerance.” Procurement rules in both Peru and Colombia require that any public contract tainted by corruption be terminated immediately. As the Brazilian investigation into construction giant Odebrecht unfolded, it became clear that many projects to build highways, power plants, and other infrastructure projects in the two countries had been corruptly awarded.  Authorities in both countries then did what the law told them they must: cancel the contracts.

Most large infrastructure contracts in Peru and Colombia are in the form of Public-Private Partnerships (PPPs), and the immediate termination of a PPP can be enormously costly.  Not only to the firms that paid bribes to secure the contract, but to lenders, suppliers, and the hundreds of other contractors on the project who had no knowledge or involvement in the bribery scheme.  The greatest costs are likely be felt by the citizens of Colombia and Peru.  For as the chart shows, the consequence of zero tolerance is a halt to new spending for roads, power, and other essential facilities as investors and project developers shy away from the risk future contracts will be terminated for the tiniest of infractions by anyone associated with the project.   

Colombians and Peruvians may today be proud their governments are so tough on corruption neither one will tolerate a speck of it in any contract for infrastructure.  Tomorrow citizens of the two countries may have a different view: when power shortages mean the lights won’t come on and the failure to build new roads and maintain old ones produces horrendous traffic jams.  

Last week the World Bank hosted a presentation by Inter-American Development Bank staff where the issue of why “zero tolerance” is a good slogan but a bad policy was examined and means for addressing infrastructure corruption without producing the results shown in the chart was discussed.  A paper the IDB presenters recently published, the source of the figure above and the basis of their presentation, is here.   A video of the session here.  

Putting Anticorruption Up for a Vote: The Challenge of Designing Effective National Referendums

One of the biggest challenges in the fight against corruption is getting people in power to reform the very system from which they currently benefit. Over the past year, we have seen anticorruption advocates in Colombia and Peru attempt to bypass this hurdle using national popular referenda on anticorruption measures.

In Peru, the referendum on December 9, 2018 came on the heels of the massive Odebrecht scandal, which implicated all of Peru’s living former Presidents. Current President Vizcarra and his supporters originally proposed a referendum containing three anticorruption reforms: banning the immediate reelection of legislators and executives, reforming the system by which prosecutors and judges are appointed, and instituting new campaign finance regulations. The required legislative approval of the referendum took several months, and during this process the legislature added another proposal (not supported by President) to create a second legislative chamber. In the end, the three original reforms passed, and the proposed bicameral legislature failed after a successful “Yes, yes, yes, no” campaign by the President and his supporters.

Colombia’s referendum also came in response to the fallout from the Odebrecht scandal. On August 28, 2018, Colombia had a national referendum on seven anticorruption measures that aimed to improve transparency in governance, institute legislative term limits, and cut legislator pay. Six of the seven measures proposed in the referendum had previously failed in the lower house of the Colombian legislature, but 99% of voters approved all seven measures in the referendum. Though the total number of citizens voting fell just short of the quorum required for the referendum to be binding, President Duque convened an anticorruption roundtable and vowed to implement all seven measures by December 2018. The President proposed eight measures inspired by the referendum to the legislature, but momentum has stalled as legislators look to modify the proposals or avoid voting on them. With no clear deadline for if and when they will be passed, their fate is now uncertain.

As I discussed in an earlier post, the Colombian referendum was not without its faults, specifically with respect to the inclusion of counterproductive retributive measures. More generally, while a national referendum may seem like an ideal way to bypass conflicted legislators, a referendum poses serious three risks that need to be addressed if one hopes to use this lawmaking mechanism to combat corruption:

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When Justifiable Anger Leads to Bad Policy: The Unintended Consequences of Colombia’s Anticorruption Referendum

Last August, Colombia held a national referendum on seven anticorruption measures. Despite the fact that six of these measures had previously been proposed in, but failed to pass out of, the lower house of the legislature, popular support for the measures was overwhelming: each measure received 99% “Yes” votes. The referendum did not pass, however, because even though more people voted “yes” on the referendum than voted for the current President, under Colombian law the referendum would only pass if a quorum of 12.1 million citizens voted, and the 11.6 million voters who turned out fell short of that number. Nonetheless, proponents of the referendum declared it a success because it has put public pressure on Colombia’s political leaders to implement these measures. And indeed, President Duque has convened an anticorruption roundtable and vowed to implement all seven measures by December 2018.

Is this a good idea? It’s certainly the case that Colombia needs to do more to combat corruption, which is estimated to cost Colombian taxpayers at least $17 billion a year. But it’s not clear that all of the proposed solutions, though doubtless well-intended, are good public policy. I won’t attempt a comprehensive review of all seven measures here. I’ll put to one side discussion of those measures that focus on improving transparency (for example, by publicizing government budgets, legislators’ voting records, and public officials’ tax returns and asset declarations) or on making penalties more severe (for example, requiring those convicted of corruption to serve their full sentences, and nullifying government contracts with parties convicted of corruption). Rather, I want to address two measures that target Colombian legislators: one of these measures would impose a three-term limit, while the other would substantially cut legislators’ pay.

These two measures appear to reflect understandable public anger at how legislators have abused their positions for private gain. But this retributive impulse may produce bad policy. Indeed, both term limits and salary cuts are likely to prove counterproductive in the fight against corruption in Colombia.

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Guest Post: Toward Global Standards for Defense Sector Governance

Amira El-Sayed, Program Manager for Transparency International’s Responsible Defence Governance program, contributes today’s guest post:

The governance of military power presents one of the great global challenges of our age. The defense sector is large, powerful, and secretive, and for those reasons especially vulnerable to corruption. In many countries, small groups of elites divert defense resources for personal enrichment, which can create risks to a state’s stability and security. Perhaps ever more troubling, in many countries powerful militaries run vast and secretive business empires exempt from oversight. Some of these businesses, such as resource extraction, are nominally legal, but militaries are often enmeshed with illegal activities like the trafficking of drugs, arms, and people. This too threatens state security, in at least two ways. First, poorly governed, corrupt militaries may be unable to respond effectively to genuine national security threats. Second, when the military uses its power to secure economic advantages for elites, this may contribute to the public resentment and frustration that can fuel violent extremist movements.

Improving governance in the defense sector is especially challenging. Defense sectors have historically hidden behind an “exceptional” status that has been used to stymie governance reform, with “national security” invoked as a sweeping justification to evade legitimate scrutiny from independent institutions and experts, such as auditors, anticorruption institutions, and civil society organizations. And this is not just an issue in authoritarian states: even in democracies, militaries are often exempted from meaningful oversight by parliamentary committees, judiciaries, audit offices, and anticorruption bodies, even as oversight by those bodies expands in other areas. While the need for secrecy may well be more pressing with respect to certain aspects of military and defense policy, the exemption of the defense sector from meaningful scrutiny is often overbroad, unjustified, and used to mask corruption, misuse of resources, and incompetence.

So how do you address one of the most complex challenges in governance, in a sector that has been exceptionally secretive, opaque, and impenetrable? Some of the work has to be done at the national level in individual countries, tailored to the each country’s specific circumstances. (There are many examples of such work by Transparency International (TI) and other civil society organizations. For instance, in Ukraine TI worked to establish high-level defense anticorruption committee called NAKO, and in Nigeria TI worked with the Air Force to take examine its governance structures and anticorruption systems.) But what about global standards, along the lines of what has been developed in other areas, like human rights and labor? Here there appears to be a significant gap. True, some security-related instruments do provide some principles for state/military behavior in specific areas, such as the OCSE Code of Conduct, UN Arms Trade Treaty, the NATO Building Integrity Programme, and the Tshwane Principles. And some of the general anticorruption or governance-related instruments, such as the UN Convention Against Corruption and Open Government Partnership, have some limited applications to the defense sector. But none of these instruments offers a comprehensive global approach to defense governance.

To fill this gap, TI is launching an initiative to formulate, formalize, and promote a set of global principles that underpin responsible, accountable governance of military power—principles that would embrace the idea that the military must be accountable to the people and that would, if followed, improve domestic governance of the defense sector. That is, TI is working with national governments, other civil society organizations, and the international community to develop Global Standards for Responsible Defense Governance, embodied in a Declaration on the Responsible Governance of Military Power. Continue reading

Preventing Corruption in Development Projects: The World Bank’s La Guajira Project

Report Number No: 38508-CO for a Proposed Loan in the Amount of US$ 90 Million to the Department of La Guajira with the Guarantee of the Republic of Colombia for a Water and Sanitation Infrastructure and Service Management Program is probably not the first place one would turn for advice on preventing corruption in development projects.  But it should be.  For annex 11 contains a text book example of how to identify and mitigate the risk of corruption in a donor-funded project.

The annex is part of the project appraisal document, the paper the World Bank’s Board of Directors relied upon in February 2007 in approving a $90 million loan to the Department of La Guajira in Colombia to upgrade the department’s water and sanitation services.  The loan was for the purchase of equipment and construction of civil works in some dozen or so municipalities and pilot water and sanitation projects in several remote rural areas.  While the project document made a strong case for the project’s benefits, it minced no words when it came to the risks of corruption the project faced: “The Department of La Guajira has a reputation for weak governance, corruption, and the continued presence of parallel institutions which have prevented public sector efforts to meet citizen needs in an equitable and effective manner.”  To be sure the message was not lost on board members, the authors went on to warn that “corruption, public sector malfeasance, capture by elites and special interests, and the paucity of accountability and transparency” is endemic in La Guajira and is the reason why the department remains so poor.

After reading such a clear, candid statement of the project’s corruption risks, one might question the sanity of any board member who voted to put $90 million of World Bank funds at risk.  But in fact an unvarnished analysis of the risk of corruption in the project is the first reason why the board was right to approve the loan the corrupt environment in La Guajira notwithstanding.  Project managers cannot prevent corruption in their projects if they are in denial about the risks they face.

The second reason why the board was right to approve the project loan is the chart that appears in the annex. Continue reading

London Anticorruption Summit–Country Commitment Scorecard, Part 1

Well, between the ICIJ release of the searchable Panama Papers/Offshore Leaks database, the impeachment of President Rousseff in Brazil, and the London Anticorruption Summit, last week was quite a busy week in the world of anticorruption. There’s far too much to write about, and I’ve barely had time to process it all, but let me try to start off by focusing a bit more on the London Summit. I know a lot of our readers have been following it closely (and many participated), but quickly: The Summit was an initiative by David Cameron’s government, which brought together leaders and senior government representatives from over 40 countries to discuss how to move forward in the fight against global corruption. Some had very high hopes for the Summit, others dismissed it as a feel-good political symbolism, and others were somewhere in between.

Prime Minister Cameron stirred things up a bit right before the Summit started by referring to two of the countries in attendance – Afghanistan and Nigeria – as “fantastically corrupt,” but the kerfuffle surrounding that alleged gaffe has already received more than its fair share of media attention, so I won’t say more about it here, except that it calls to mind the American political commentator Michael Kinsley’s old chestnut about how the definition of a “gaffe” is when a politician accidentally tells the truth.) I’m going to instead focus on the main documents coming out of the Summit: The joint Communique issued by the Summit participants, and the individual country statements. There’s already been a lot of early reaction to the Communique—some fairly upbeat, some quite critical (see, for example, here, here, here, and here). A lot of the Communique employs fairly general language, and a lot of it focuses on things like strengthening enforcement of existing laws, improving international cooperation and information exchange, supporting existing institutions and conventions, and exploring the creation of new mechanisms. All that is fine, and some of it might actually turn out to be consequential, but to my mind the most interesting parts of the Communique are those that explicitly announce that intention of the participating governments to take pro-transparency measures in four specific areas:

  1. Gathering more information on the true beneficial owners of companies (and possibly other legal entities, like trusts), perhaps through a central public registry—which might be available only to law enforcement, or which might be made available to the general public (see Communique paragraph 4).
  2. Increasing transparency in public contracting, including making public procurement open by default, and providing usable and timely open data on public contracting activities (see Communique paragraph 9). (There’s actually a bit of an ambiguity here. When the Communique calls for public procurement to be “open by default,” it could be referring to greater transparency, or it could be calling for the use of open bidding processes to increase competition. Given the surrounding context, it appears that the former meaning was intended. The thrust of the recommendation seems to be increasing procurement transparency rather than increasing procurement competition.)
  3. Increasing budget transparency through the strengthening of genuinely independent supreme audit institutions, and the publication of these institutions’ findings (see Communique paragraph 10).
  4. Strengthening protections for whistleblowers and doing more to ensure that credible whistleblower reports prompt follow-up action from law enforcement (see Communique paragraph 13).

Again, that’s far from all that’s included in the Communique. But these four action areas struck me as (a) consequential, and (b) among the parts of the Communique that called for relatively concrete new substantive action at the domestic level. So, I thought it might be a useful (if somewhat tedious) exercise to go through each of the 41 country statements to see what each of the Summit participants had to say in each of these four areas. This is certainly not a complete “report card,” despite the title of this post, but perhaps it might be a helpful start for others out there who are interested in doing an assessment of the extent of actual country commitments on some of the main action items laid out in the Communique. So, here goes: a country-by-country, topic-by-topic, quick-and-dirty summary of what the Summit participants declared or promised with respect to each of these issues. (Because this is so long, I’m going to break the post into two parts. Today I’ll give the info for Afghanistan–Malta, and Thursday’s post will give the info for Mexico–United States). Continue reading